The relevance of this study lies in the fact that innovation is now becoming a key driver of economic advancement in the developing world. This provides an opportunity to generate pro-poor growth, increase output, raise welfare levels with limited resources. Innovation, as a creative but pragmatic response to constraints of all kinds, and new technological and organisational solutions that have the ability to emerge in a specific context, is therefore important not only for economic growth but also for the development itself. Innovation policy requires action in many different areas, such as education, finance or science and technology, which require "a holistic government". The purpose of the study is to reveal the key mechanisms for stimulating innovation-related activities from the perspective of the state, to propose recommendations aimed at developing innovation activities in Azerbaijan and improving the mechanism that provides stimulating actions for innovation activities on the part of the state. The study is based on academic papers by European, American, Russian and other specialists dealing with innovations and the stimulation of innovation from a governmental perspective, and on international statistical data. The following methods were used in the study: synthesis, comparison, economic and statistical analysis, generalisation and interpretation of the findings, graphical representation of the data. The findings of this study enabled the development of recommendations based on the analysis to improve the government's work with different organisations involved in developing innovations in different sectors and areas of activity.